With electricity the biggest expense, mining companies including publicly traded giants Marathon Digital Holdings and Riot Platforms need to lower usage costs to maintain a positive margin. Their older computers may still bring a profit, just not likely in the US.

“It’s a natural migration” with buyers of the old machines operating in parts of the world where power is the cheapest, said SunnySide Digital chief executive officer Taras Kulyk, who has resold US computers to miners in countries such as Ethiopia, Tanzania, Paraguay and Uruguay. “This is accelerated by the halving.”

Some 600,000 S19 series computers, which account for a majority of machines currently in use, are moving out of the US mostly to Africa and South America, according to an estimate by Ethan Vera, chief operating officer at crypto-mining services and logistics provider Luxor Technology in Seattle.

In bitcoin mining, specialised machines are used to validate transactions on the blockchain and earn operators a fixed token reward.

Anonymous bitcoin creator Satoshi Nakamoto baked in the once-every-four-years halving to maintain the hard cap of 21 million tokens. Next month’s event is the fourth since 2012 and the reward will drop to 3.125 bitcoin from 6.25 now.

Bitcoin has surged about 50 per cent this year to around US$63,500, though it is down from a record high of US$73,798 reached on March 14.

Bringing more efficient machines online has become more urgent with the halving just weeks away, as continued use of older equipment could mean electricity costs will be close to or exceed mining revenue.

While S19 series and similar models might not be profitable to run in the US after the halving, they “can still generate decent profits and get an extended life if hosted” in parts of Africa, said Jaran Mellerud, CEO at Dubai-based Hashlabs Mining, which leases data centre space in Ethiopia and provides hosting services to bitcoin miners.

Some buyers are waiting until after the event to purchase older computers, assuming their prices will drop even more, said Lauren Lin, Luxor’s business development director.

The used S19 models cost about US$7,030 in March 2022, according to Luxor, which runs a trading desk for used machines. The price dropped dramatically a year later to about US$900 as bitcoin prices sank, then to about US$427 this month and is estimated to sell for about US$356 in May, after the halving.

There are miners in the US opting not to sell their hardware and instead transfer the equipment to regions with lower electricity costs and third-party data centres. Nuo Xu, who has two sites in Texas, is travelling this month to Ethiopia, Nigeria and a few other countries to scope out locations for about 6,000 older computers.

“There are more risks for my machines in Africa but I have to move them there,” he said. “Cheaper electricity outside the US means it will take a much shorter time to recover the overhead costs,” with labour and building materials also much less expensive, he said.

Miners globally who do not have their own facilities pay a hosting fee, which typically includes electricity, labour and third-party operators.

It has been Xu’s experience that fees in the US come to about 7 US cents per kilowatt hour. In Ethiopia, which has loosened regulations on crypto mining and increased its power generation, the rate is about 5 US cents, according to Hashlab’s Mellerud. That two-cent difference is huge for miners.

Electricity itself is about 3 US cents per kWh in Ethiopia, according to Hiwot Eshetu, marketing and business development director at Ethiopian Electric Power. In the US, the range is about 3 US cents to 6 US cents, based on estimates from Luxor.

“Ethiopia is really becoming a big player in the digital mining ecosystem,” said SunnySide’s Kulyk, who added his company is negotiating a deal to help move between 20,000 and 40,000 rigs to the east African nation.

Why Chinese bitcoin miners are flocking to Ethiopia

Not all US-based equipment leaves the country. That process can be tougher for publicly traded companies because they have to take risk-averse shareholders into account. There is also some hesitation to relocate machines abroad due to transport costs, breakage and security concerns.

Publicly traded Bit Digital, one of the biggest bitcoin miners, has older generations of computers sitting dormant in a warehouse in Houston.

“These machines basically collect dust every now and again,” said CEO Sam Tabar. But the New York-based company holds onto them because when bitcoin prices are high, the computers can be pulled out of retirement and still make a profit, he said.

Miners have been prepping for the halving for years and are spending big bucks to replace their older hardware.

The 13 major public bitcoin-mining companies, including Riot Platforms and CleanSpark, have placed orders for more than US$1 billion worth of machines since February 2023, according to crypto-mining researcher TheMinerMag.

Five of the biggest miners raised more than US$2.7 billion from selling shares in the two years ended in December. Since the start of this year, those same miners have raked in an additional US$840 million, according to the researcher.